Silver lining amid the two-wheeler slug-fest

Wheels of fortune!

Silver lining amid the two-wheeler slug-fest
The two-wheeler market in India is witnessing an unprecedented slug-fest. In July 2015, major players  Hero MotoCorp (HMCL), Honda Motorcycle & Scooter India (HMSI), and TVS Motor Company lost momentum in growth in the motorcycle segment, though all three grew in the smaller, but important scooters/scooterettes segment.

Though Bajaj grew its sales 14.89 per cent in July over the previous year in motorcycles, it is not present in the scooter/scooterettes market. July sales numbers indicated a continuing trend from the April-June 2015  first quarter, where the entire motorcycle segment — the largest in the two-wheeler space — had shown a decline in growth of 2.10 per cent.

No doubt Hero MotoCorp, Honda Motorcycle & Scooter India (HMSI), Bajaj Auto, TVS Motor Company, Eicher Motors, Yamaha and Mahindra are slugging it out in the two-wheeler market. But what exactly are these companies doing to both grow their market share and the overall market?

Size, standards, stature

According to HMSI, it is all about building capacity, creating benchmarks, and retaining leadership. “In 2015, Honda’s strategy is to create (benchmarks with 15 new products), retain (leadership in automatic scooter and 125 cc executive motorcycles) and expand (new production capacity, new network).  For us, 2015 is a year of preparing for the big leap that our new capacity at the upcoming fourth plant (the world’s largest scooter-only plant) at Gujarat will bring by early 2016. The new capacity will take our cumulative production capacity to 6.4 million units and help us in meeting the domestic demand faster,” Yadvinder S Guleria, Senior VP (Sales & Marketing), Honda Motorcycle & Scooter India, told Deccan Herald.

 He went on to add, “In parallel, we have a major focus on increasing our touch-points within the country. We have aggressively doubled our network in two years from 1,950 outlets (FY 2012-13) to 3,750 outlets (FY 2014-15) and plan to add 800 new touch-points in the current fiscal to reach closer to our customers. Our promotional strategy extends from city being hub and tehsils as spoke, to go one step deeper. Today, tehsil has become hub and villages are the new spokes of our rural strategy. While Honda has achieved much till now, we are working hard at the base camp eagerly looking forward to a steep climb ahead.”
 
Analysts not too bullish

Two-wheeler companies may be going full throttle when it comes to expanding capacities and dealer network but analysts do not seem to be too bullish about the sector in the current fiscal. India Ratings believes that while demand for certain segments such as passenger vehicles and MHCVs has exhibited better-than-expected trends in the last six months, sustainability is yet to be established. Further, signals emanating from the two-wheeler segment continue to reflect slowing demand from rural markets due to which it has scaled down growth projections for motorcycles and scooters.

“Volume growth in scooters and motorcycles has been coming down from the highs seen in FY12 and FY13. Rural markets have become more relevant with urban demand for motorcycles saturating. However, motorcycle sales growth has moved into the negative territory as rural markets are showing signs of slowing. Scooter sales growth tapered down to 9.5 per cent during April-July 2015 from over 20 per cent in past five financial years, largely due to the base effect. India Ratings expects this trend to continue in FY16. The agency has, therefore, scaled down its sales growth numbers for motorcycles and scooters with growth expectation now being flat (earlier 2-4 per cent) and 7-10 per cent (earlier 20-24 per cent), respectively, for FY16,” India Ratings associate director Sudarshan Shreenivas said in a note.

HSBC, in a recent note, said that Hero MotoCorp (HMCL) could face stepped up competition from Honda and TVS. It said the mass motorcycle market (around 60 per cent of India’s two-wheeler industry) is unlikely to grow by more than a mid- to high-single-digit annually in coming years. “We expect Eicher's Royal Enfield brand to continue performing robustly in the premium segment, led by a growing addressable market, improving product quality, and widening distribution reach,” HSBC said.

HMCL, Bajaj strategise

When contacted, an HMCL spokesperson said the company sold a record 6.63 million two-wheelers in the last financial year. “This year, we are yet again going to set a new record surpassing this number,” he said. The spokesperson noted that “in the domestic motorcycle market, HMCL continues to have well over 50 per cent share and will keep adding to that share consistently”.

By 2020, the company intends to sell 12 million two-wheelers annually and achieve cumulative two-wheeler sales of 100 million units. Of the 12 million annual sales, it hopes to sell 1.2 million in overseas markets. In addition, it hopes to have 20 manufacturing and assembly plants across the globe and sell in more than 50 countries, the spokesperson said.

The company currently has four state-of-the-art plants. It is also setting up an R&D centre in Jaipur which will employ 600 engineers, he said.

Bajaj Auto also believes that it will continue looking at providing the best products in the market. “We will look at providing the best products in the market and exploring new segments. We launched the Pulsar Adventure Sport, which was a new segment in the sports segment. We will continue to launch new products and will do at least one new launch by this year,” Bajaj Auto president (motorcycle business) Eric Vas told Deccan Herald. While two-wheeler majors strategise, analysts are unwilling to be easily swayed. HSBC, for one, points to the market saturation being a drag on growth.

“The target market — households with annual incomes above $2,000 — are already quite saturated, with penetration around 75 per cent, limiting long-term growth prospects. Competition has increased too, with TVS, Honda, Yamaha, and Mahindra all jostling for space in the scooter and mass market motorcycle market,” HSBC says.

The challenge is thus crystal clear before the two-wheeler majors. They have to both grow the market, as well as increase their respective market shares. And while they do that, the consumer for sure can expect plenty of bonanzas.

              

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